Leading article: A sorry tale of private greed and public incompetence

There are uncomfortable lessons in the disgraceful demise of MG Rover

The demise of MG Rover might be seen as a cautionary tale of what happens when governments try to buck the market. By 2000 Rover was, with the exception of its Mini and Land Rover marques, a failing car maker.

Even the mighty BMW, having acquired the company, had failed to turn around its fortunes. But MG Rover was also a significant employer. And when large employers get into financial trouble, ministers get involved.

The Government smoothed the way for the firm to be bought by a consortium of four West Midlands businessmen for a nominal sum. What happened next is detailed in the independent report into the firm's collapse released by the Business Department yesterday. The company continued to make heavy losses. A proposed merger with a Chinese carmaker fell through. And in 2005 MG Rover finally went into administration, leaving debts of more than £1bn and putting some 6,500 workers out of a job.

But, before the collapse came, the Government handed over some £6.5m to help the struggling business to pay workers' wages in the belief that the Chinese deal was about to happen. And before the shutters came down, the five executives of MG Rover managed to pay themselves an astonishing £42m, drawing on the £400m loan that BMW had handed over to extricate itself from the company in 2000.

The Government is right to argue that the behaviour of the Phoenix consortium in the five years in which it ran MG Rover was a disgrace. They drew vast salaries and lavish benefits, while all the time running the business deeper into the ground. There was not even the pretence that their remuneration was linked to performance. It seems incredible that the worst sanction they are likely to face for such behaviour is being barred from holding company directorships.

But ministers cannot escape some share of the blame as well. The Government encouraged the deal with the Phoenix group and, having interfered, they failed to keep an eye on what the management was up to. And then they got their fingers burned, politically and financially, when they interjected themselves into the negotiations with the Chinese firm. What this saga emphasises is the need for greater transparency when it comes to government dealings in the private sector. Despite this report, much remains unclear about the role of ministers in brokering the original 2000 deal and in the 2005 negotiations.

This debacle also has some troubling contemporary resonances. This week the German government, with some input from our own, engineered the sale of GM's European arm, Vauxhall and Opel, to a Canadian car parts firm. State money – in this case mostly German – is being used to prop up an ailing car company, primarily in order to preserve jobs. The uncomfortable question is whether this intervention is a fight against the inevitable, as was the case with Rover.

A case can be made that the extraordinary shock of the credit crunch makes this situation different. And Opel/Vauxhall is no economic basket case, unlike Rover in 2000. Yet there exists significant overcapacity in the global car industry. And there is always a danger of governments deluding themselves that they have the foresight to pick the economic winners of the future.

It is said that the four most expensive words in the language are "This time it's different". After yesterday's damning report of private sector greed and public sector incompetence, we had better hope that, in this case, there is actually some truth to it.